Question

47. List the four types of audit opinions that can be issued in an audit of financial statements. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

48. Give an example of a situation where an auditor issues an unmodified opinion and adds an emphasis of matter paragraph. __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

49. When a client changes its accounting policy, the auditor is required to issue what in relation to the change in policy under GAAP and SEC rules?   ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

50. Under the PCAOB’s new auditor report standard, an auditor is required to issue a Critical Audit Matters (CAM). What are the 4 requirements necessitating the issues of a CAM? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Answer 1

1. List the four types of audit opinions that can be issued in an audit of financial statements.

a. Modified Opinion

b. Unmodified Opinion

c. Disclaimer of Opinion

d. Adverse Opinion

2. Give an example of a situation where an auditor issues an unmodified opinion and adds an emphasis of matter paragraph.

An unmodified opinion provides a high level of assurance the a professional, independent examination of financial statements has not revealed any actual or possible material misstatements in those financial statements.

3. When a client changes its accounting policy, the auditor is required to issue what in relation to the change in policy under GAAP and SEC rules?

The auditor should evaluate and report on a change in accounting estimate effected by a change in accounting principle like other changes in accounting principle. The auditor should recognize a change in the reporting entity by including an explanatory paragraph in the auditor's report, unless the change in reporting entity results from a transaction or event. A change in reporting entity that results from a transaction or event, such as the creation or complete or partial purchase or disposition of a subsidiary or other business unit does not require recognition in the auditor's report.

The auditor should evaluate a change in accounting principle to determine whether -

a. The newly adopted accounting principle is a generally accepted accounting principle,

b. The method of accounting for the effect of the change is in conformity with generally accepted accounting principles,

c. The disclosures related to the accounting charge are adequate and

d. The company has justified that the alternative accounting principle is preferable

4. Under the PCAOB’s new auditor report standard, an auditor is required to issue a Critical Audit Matters (CAM). What are the 4 requirements necessitating the issues of a CAM?

1. The auditor’s assessment of the risks of material misstatements.

2. The degree of auditor judgment related to areas in the financial statements that involved the application of significant judgment or estimation by management.

3. The nature and timing of significant unusual transactions and the extent of audit effort.

4. The nature and extent of audit effort required to address the matter.